New inflation index awaits Cabinet nod to debut in June

Tuesday, 24 May 2011 00:19 - - {{hitsCtrl.values.hits}}

COLOMBO (Reuters) - Sri Lanka plans to introduce a new inflation index from June to reflect the latest consumption and economic pattern, the state-run Department of Census and Statistics said on Monday.

The new Colombo Consumer Price Index (CCPI) will use surveys done in 2006 and 2007 and replace the existing one, which has a base year of 2002 and was introduced in early 2008.

“We are going to stop the 2002 base year index from the next month and introduce the new index. We are waiting for cabinet approval,” D.C.A. Gunawardena, the director at the Department’s Prices and Wages division told Reuters in an interview.

“This is a normal international practice to rebase the existing index to reflect the current economy and structure. There is no drastic change, but some slight changes are there on the weights.”

The new index comes at a time when the current index shows annual inflation sped to a 27-month high of 9.8 percent in April prompting some criticism that the government is manipulating the index for its own benefits.

The inflation index is used as the base for cost of living allowance for state sector employees and an under-estimation of the index means the government would pay a lower cost of living allowance for around 1.5 million of state sector labours.

The main opposition United National Party has already blamed government of manipulating the index to artificially lower the rate to cool rising discontent over the cost of living.

“As far as the Statistics Department is concerned, we are going to reflect the reality,” Gunawardena said when asked if there is any political motives are behind the move.

The weights for food items under the new index has been reduced to 41.05 percent from 46.71 percent, while the weight on housing, water, electricity, and gas has increased to 23.74 percent from 18.29 percent, the data seen by Reuters showed.

The new index will also not include alcoholic beverages and tobacco products like the current one. It will also have a higher weight for rice, the staple food and lower one for wheat.

“Those are government policies,” Gunawardena said briefly without elaborating.

For the detailed breakup of the weights for the existing and proposed index, please see “Weightage on the health is reduced due to high government expenditure on hospitals,” Gunawardena said.

The proposed index, similar to the existing one, will cover only the greater Colombo area and the base years will be 2006/7 as compiled data on the consumer surveys done in 2010 are not available yet, Gunawardena said.